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Opinion: Alabamians will bear the cost of the Credit Card Competition Act

Alabama consumers dodged a major bullet when the so-called Credit Card Competition Act, which targets existing safeguards for consumers when they swipe their credit cards, was nearly tacked on at the last minute to the must-pass National Defense Authorization Act.

Pitched by big-box retailers like woke Target as being pro-consumer and increasing transaction security, the bill would ultimately accomplish the opposite. 

Now, while Congress is running up against a September 30 deadline to fund the government, a select group is working to attach this amendment to an appropriations package that would prevent a government shutdown. 

This bill aims to demolish the interchange system that protects your transactions when you swipe your credit card.

Not only does the existing payments system help safeguard your personal financial information against hackers and other cybercriminals, but it also empowers your credit union or bank to crack down on fraud and provides the resources to help restore your account balances if they do get compromised due to the unwillingness of others to secure consumer data.

While your local credit union remains in close compliance with federal law to protect your information, unfortunately other industries, like merchants, are not required to treat your data with the same care or concern, oftentimes resulting in fraud.

Advocates of the Credit Card Competition Act – including bill sponsor and longtime defender of retailers like Walmart Senator Dick Durbin (D-IL) – claim it will increase competition and cut costs for consumers. Recent history proves them wrong on both points.

But don’t take my word for it. Big-box retailers themselves have already shown what they would do with these supposed savings. The original Durbin amendment, which targeted debit card transactions, was squeezed through Congress back in 2010. That version was also billed as a cost-savings mechanism for consumers, but everyday Alabamians saw their costs go up instead.

According to a study published by the Federal Reserve Bank of Richmond, 98% of merchant savings were never passed down to consumers, and 20% of merchants actually increased costs on their customers. 

The Credit Card Competition Act is Durbin 2.0 in sheep’s clothing. And, like wolves that learn to sneak around in the guise of their prey, the Credit Card Competition Act makes everyone more susceptible to fraud.

Remember the big Target data breach from late 2013? Some 40 million shoppers had their financial information exposed to hackers in the weeks between Black Friday and Christmas, reportedly due to malicious software installed on the retailers’ machines.

The big-box retailer largely got off the hook, while tens of millions of customers were left in the lurch. This legislation would further jeopardize the security of the payments system and leave consumers vulnerable to heightened fraud.

Fraud rates have doubled in the years since Durbin 1.0 was implemented in 2011. In 2022 alone, more than 422 million consumers were affected by data breaches. Annual card fraud losses are already over $12 billion and expected to increase to $19 billion by 2031.

And your financial institution, empowered by the existing interchange system, is often the only one standing in the gap between you and fraudsters.

While financial institutions are legally required to secure consumer data, merchants are not held to the same standard, leaving consumers vulnerable.

The Credit Card Competition Act would enable merchants to choose the cheapest – and likely least secure – network to transmit their customers’ data, inviting cybercriminals to feast at the expense of hardworking Americans.

Instead of helping everyday Alabamians already struggling against inflation, any savings would further pad the pockets of massive corporations like Walmart and Target.

Thankfully, an increasing number of elected leaders have seen through the ruse and refused to give in.

Credit unions are especially grateful for the leadership of Senators Tommy Tuberville and Katie Britt for standing up for consumer privacy and looking out for the security of all Alabamians. Our Senators have stood strong in defense of everyday citizens, ensuring that customers are able to receive the fraud protection they currently enjoy.

If big-box retailers were serious about helping consumers, they would shore up their own defenses against fraud rather than trying to tear down the existing interchange system to make a quick buck at the expense of consumers.

As they have proven in the years since Durbin 1.0, these retailers want to reap the benefits of reduced costs, jack up the prices on consumers, and leave local credit unions and other financial institutions on the hook for the increased instances of fraud that would inevitably result.

For the financial safety and security of all Alabamians, it is critical that they not succeed in doing so. We urge you to contact your Senators and Member of Congress and urge them to oppose the Credit Card Competition Act.

Samantha Beeler is the President of the League of Southeastern Credit Unions & Affiliates. LSCU represents nearly 300 credit unions in Alabama, Florida and Georgia, with a combined total of more than $181 billion in assets and more than 12.1 million members.

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